Dollar Tree and Dollar General announced quarterly results that beat expectations. NPR’s Steve Inskeep talks to Harvard business professor Willy Shih about buying in times of high inflation.
STEVE INSKEEP, HOST:
Dollar Tree and Dollar General discount stores are booming. Both chains saw their stock prices rise after posting upbeat earnings reports this week. Does this say anything about the broader economy? Willy Shih is here to find out. He is a professor at Harvard Business School. Hello.
WILLY SHIH: Hello, Steve.
INSKEEP: OK, so Dollar Tree and Dollar General are in place. Walmart and Target are doing a little worse than expected. What does it say?
SHIH: Well, I think that says a lot of people in this country are feeling the effects of inflation and are looking for lower prices. And when you’re looking for lower prices, this is one of the places you go, especially a place like Dollar Tree, where you now know everything is $1.25. So if I’m trying to save some money this is probably a good place to go.
INSKEEP: I guess we should just try to categorize things here. Walmart, of course, markets itself as a place to sell cheap goods. Dollar stores are like the next notch in bargain hunting. Is it correct?
SHIH: Well, some people would call it down trading. In fact, it really is a convenience store. The main thing is that their prices are lower. Now that often means you have smaller pack sizes as well. But if you’re living paycheck to paycheck – and, you know, unfortunately, a lot of people in this country are like that – you know, and you’re feeling cost pressure to fill up on gasoline, maybe I’ll only buy what I need right now. Often it will be a smaller package.
INSKEEP: Let’s see what urges people because, of course, this is a period when unemployment is quite low. Salaries are rising. But of course there is inflation and a lot of people are out of the job market. What makes budget tight for people?
SHIH: Well, I think food and fuel are the two most important. We are seeing steep increases in the prices of meat, poultry, fresh fruits and vegetables and then, of course, at the gas pump. I was at a gas station the other day and saw someone who couldn’t afford to fill up their van. He could only fill it halfway. I overheard him talking to a friend who was with him. And so, you know, with those kinds of big expenses, there’s a lot of pressure on household budgets.
INSKEEP: Do you think there are people who shop at dollar stores who would not have thought of themselves a few years ago as the type of person who would shop at a dollar store?
SHIH: Well, in the recession of 2008-2009, we saw a similar effect: when people get a little tense, feel a little rushed, they drop, if you will, and go to the dollar store. That’s part of it. The other thing is we’ve seen a lot of growth in those two chains, especially Dollar General, where they’ve really become rural America’s convenience store, right? So, near my home in New Hampshire, there’s 4 Dollar Generals, for example, within a 10-mile radius, right? It is therefore also a convenience store. And when people know, I can go there for milk, or maybe I need dishwashing detergent or laundry detergent – and I know it’s going to be a low price. So that’s something we’ve seen in previous downturns.
INSKEEP: I’m amazed at the statistic that’s in front of me here. He says there are more Dollar Generals in the United States than McDonald’s. So how profitable is this business, selling things at low prices?
SHIH: Well, of course, that’s pretty good. I think McDonald’s has also grown lately. But, you know, having so many dollar stores nearby, that says a lot about their strategy, which is to fill maybe underserved or underserved communities in rural America. So particularly in the case of Dollar General, you have seen that they are ubiquitous in the campaign. And it was a very good deal for them.
INSKEEP: You know, you alluded to that a moment ago. The base price at a dollar store, at Dollar Tree, for example, is $1.25, not a dollar. We are here in a period of inflation. Are they going to have to become the 2 dollar store?
SHIH: Well, I hope not. You know, one of the things that when you had a price of $1, it kind of limited what they could sell. Now when they raised the price to $1.25, it immediately boosted their bottom line because they were selling a lot of things that they used to sell for a dollar. But when you go up in price, it increases the number of things you can sell. And it gives people more reasons to come to the store.
INSKEEP: Willy Shih, thank you for your ideas. I really appreciate that.
SHIH: Thank you for inviting me.
INSKEEP: He is a professor at Harvard Business School.
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